Amanda Morrall, from Simplicity KiwiSaver covers the ins and outs of using your KiwiSaver for a tiny home.
With so many aspiring first-time home buyers priced out of the market in Auckland, Wellington and Christchurch, tiny homes are turning heads.
It’s easy to understand why.
They’re small, cute, cozy and a heck of a lot more affordable than your standard three-bedroom home in Auckland worth an average of $1 million. That’s a lot of money, especially when that million-dollar brick and tile job might need some work to make it warm.
Tiny homes cost less to build, heat and maintain but are they viable for a first-time home buyer wanting to use KiwiSaver to finance the dream?
As with most big investments, it pays to do your research.
What Can Your KiwiSaver Withdrawal Be Used For?
Here’s some key points to digest before you buy the kitset package online.
Your KiwiSaver funds can only be used to purchase the land that you plan on building the tiny and not the house build itself. If you were thinking you could convert grandpa’s classic hippy truck into a tiny house and roll it onto the site, think again. The house on your plot of land needs to be on a fixed foundation.
This will be a disappointment to those who’ve spend hours on Pinterest exploring those beautifully formed bespoke homes on wheels.
Plans, Pricing and Construction Timing
Another key thing to be aware of is that if you’re in a position to finance the build, you’ll need to have those plans firmly drawn; including pricing, start and finish times and proof that they meet of relevant building codes in the district you’re building in. Your “intention to build” needs to be “immediate.” That is you can’t land bank and plan one day to build your first home in the future when you can afford.
KiwiSaver HomeStart Grant
If you can meet those conditions, then you’re in business. You might even be eligible for a HomeStart grant which could add another $20k to offset the land purchase.
The catch with the HomeStart grants are the income thresholds and the housing price caps which even by tiny home standards can be small, given the cost of land in many places across the country.
For single home buyer’s the income cap is $85,000 or for a couple $130,000.
As for the housing caps, in Auckland it’s currently $650k for new builds and $600 k for existing properties. It’s $550k for most other cities and $450k in the provinces.
How much you’re eligible for from the HomeStart grants will depend on how long you’ve been in KiwiSaver. Just like KiwiSaver, you’ll need to have been invested in the retirement savings fund for a minimum of three years.
For those buying an existing property, you’ll eligible for $1,000 a year up to a maximum of $5,000 and for new builds it’s double that. So applicants could receive been $6,000 and $10,000 on a new build. If you’re buying with your buddy who is also a first-time home owner then think in multiples but the HomeStarts grants are capped at $20,000 if there’s more parties at the table.
After three years in KiwiSaver you can withdraw the whole lot for a deposit on a first home, save $1,000. If any of your superannuation money came from an overseas investment that portion will be excluded.
And lastly, you need to have a minimum 10% deposit saved up. That 10% can be comprised of your KiwiSaver funds and potentially the Homestart grants if you qualify. Note that most banks still require a 20% deposit on mortgage.
For an overview of eligibility criteria for KiwiSaver Withdrawal and HomeStart grants, take a look here.
Tiny Homes As A First Home Option
Realistically, land values in the big city, land scarcity, and the caps on income and home prices will be obstacles for urban
dwellers wanting to squeeze their finances to get into a first time tiny home. However those willing to commute or else look beyond the boundaries of the big city, could find themselves in luck.
Remember, most providers require 10 working days notice to get action the paperwork required to redeem your KiwiSaver funds. So be sure to check them beforehand as well for any specific requirements they may have.
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Amanda’s book ‘Money Matters’ is available here on Kindle or Paperback
Disclaimer: This article is intended to provide general information only. It does not take into account your investment needs or personal circumstances. It is not intended to be viewed as investment or financial advice. Should you require financial advice you should always speak to an Authorised Financial Adviser.